Rental of commercial property

A commercial property is a property that’s used in the owner’s or the tenant’s business activities.

Here you’ll find out what to do with your taxes when you rent out a commercial property.

What counts as a commercial property

Shop premises, office premises, warehouses, premises for industrial activities, parking garages, etc. Rental of residential or holiday property may also be considered part of the owner’s business activities.

Specific information if you:

are tax resident in Norway and rent out property in Norway or abroad
are tax resident abroad and rent out property in Norway

What you need to do

Income from renting out commercial property is taxable income.

How to find your taxable income

The profit from renting out, that is, the rental income after deducting operating expenses such as insurance, ground rent, property tax, municipal taxes, and maintenance expenses, is taxable. If the rental results in a loss, you can claim a tax deduction.

Before you can calculate a taxable surplus or a deductible loss, you must have an overview of the rental income and the expenses related to the rental.

If the rental income is considered business income, the income may be taxed at up to 50.6 percent.

Business activity is something you carry out to earn money, and something you plan to continue doing over time. It’s not just a one‑off. The activity must be capable of generating a profit (earning more than it costs). It’s carried out for a particular person or company. The person running the business takes the risk if things go badly and gains the profit if things go well.

Whether the rental should be considered business activity depends on an overall assessment where the scope and duration of the owner’s work/activity is the most important factor.

Normally, the following types of rental will be considered business activity:

more than approx. 500 square metres for commercial activity, or
5 housing units or more for residential and holiday purposes

If you rent out property for both business and residential/holiday purposes, you must see these thresholds together.

Example:
If you rent out 350 square metres for business use and 3 flats for residential use, this will normally be considered business activity.

For short-term rental, the activity level is often high, so it may still be considered business activity even if only one unit is rented out.

Rental income from commercial property, when you live in the property yourself, is normally taxable.

If you rent out less than half of the property, calculated by rental value, and the property isn’t considered a multi-unit property, the rental income will be tax-free.

In sectioned buildings, the tax liability is assessed individually for each section.

If you’re unsure whether the rental is taxable, you can find out by answering a few questions.

Special rules for rentals under 30 days

There are special rules for short‑term rental under 30 days. To find out whether you must pay tax on the rental income, you’ll need to .

Rental income that’s not part of business activity is considered capital income and taxed at 22 percent.

You can claim a deduction for the municipal taxes you pay for the residential property you rent out.

If you pay property tax on the rented-out property, you can also claim a deduction for that.

You cannot claim a deduction for wealth tax on the property you're renting out.

You can claim a deduction for home and contents insurance related to the property you rent out.

The difference between upgrades and maintenance

You can only claim a deduction for expenses related to maintenance. This means expenses related to work that restores the property to its previous condition.

Expenses that improve the property or change its layout are considered upgrades.

You cannot deduct upgrade expenses from your rental income.
Upgrades may be deducted through depreciation or at a later taxable sale of the property.

If the residential property previously had a normal standard and is upgraded to a high standard, the part of the expenses representing the difference between normal and high standard is considered an upgrade.

Performing repairs to the same standard as before.
Painting the house or rooms if they were painted before.
Replacing floors, wall panels, windows, etc. to maintain the same standard as before.
Sanding parquet flooring.
Replacing plumbing.
Replacing the water heater with one of the same size.
Replacing a bathtub, mixer taps, and faucets to maintain the same standard as before.
Replacing the kitchen fittings with new ones that are, by today’s standards, considered of the same standard as before.
Maintenance of a previously tarmacked road or courtyard.

Painting the house for the first time.
Removing or moving walls to make a larger room.
Extending the electrical installations or plumbing system.
Installing a fireplace.
When replacing a wood-burning stove with a pellet-fired stove, the added expense associated with the purchase and installation of the pellet-fired stove will be considered an upgrade.
If a bathroom is moved to a different room in the house, it's considered an upgrade. However, replacing fittings in the old bathroom to the same standard is considered maintenance.
Putting down tarmac for the first time.
Prepare a plot of land for building (water, water supply, road and electricity).

You can deduct the value of your own work if you carry out maintenance on the property you rent out. However, this presumes that the same amount has been entered as income in your tax return in the same year that you carried out the work. This is because the value of the work you carry out is taxable. You can only deduct the work in the same year it was carried out.

The value of the work you carry out must be set to what it would have cost to have work of the same quality performed by others. The hourly rate for non-tradesmen must generally be set lower than what a tradesman would have charged, for example, to the hourly rate for unskilled labour. You can find the rates on the Norwegian Labour Inspection Authority’s website.

The value of the work you carry out related to upgrades cannot be deducted, but the value of such work can be added to the input value if you later sell the property. Upgrades can be added to the depreciation base if the property is depreciable. The value of your own maintenance work cannot be added to the depreciation base or to the input value.

These limitations do not apply if you buy a residential property or holiday home that you only rent out and do not use yourself.

The two limitations below apply if your rental income is now fully taxable and you’ve done the following in the past five years. That means the residential property or holiday home has previously been treated as tax-exempt:

Limitation if you rent out for less than 6 months in the first rental year

If you’ve used the property yourself and rent it out for less than 6 months in the first year, you cannot claim deductions for maintenance expenses that year. If the property stands empty after you move out, that period does not count as rented.

Limitation on deductions during the first five rental years

If you’ve used the property yourself and rent it out for more than 6 months in the first year, you can deduct the first NOK 10,000 of maintenance expenses. For expenses above NOK 10,000, the deduction is limited based on the following rates:

The deduction for maintenance expenses is calculated as follows:

Years of tax-exempt in the last five years:	Deduction for maintenance expenses (amounts in NOK):
5 years	10,000 + 50% of the amount exceeding 10,000
4 years	10,000 + 60% of the amount exceeding 10,000
3 years	10,000 + 70% of the amount exceeding 10,000
2 years	10,000 + 80% of the amount exceeding 10,000
1 year	10,000 + 90% of the amount exceeding 10,000
0 years	Full deduction

Exsamples

You own a residential property that you’ve used as your home for more than five years, and you’ve never had taxable rental income from it before. You now plan to rent it out.

In the first year, you rent out more than half of the property for 8 months, and the rental income exceeds NOK 20,000 in the calendar year. The rental income is therefore taxable.
The following year, you rent out the entire property.
Maintenance expenses in the first rental year total NOK 100,000.

Your deduction for the first year will be: NOK 10,000 + (50% x 90,000), that is (10,000 + 45,000) NOK 55,000.

If the maintenance expenses are the same in year 2, the deduction will be NOK 10,000 + (60 percent x 90,000), amounting to (10,000 + 54,000) NOK 64,000.

Assessing whether the building is depreciable

The main rule is that buildings that are rented out are depreciable when the rental income is subject to tax. Plots of land and residential properties, on the other hand, are non-depreciable. If the building is sectioned, each section must be treated as a separate building/fixed asset.

Mixed-use buildings (buildings that combine commercial areas and residential areas) that are not sectioned, can be depreciated if more than half of the building is used for a purpose that allows depreciation. The share of the building that is used for purposes that allow depreciation is determined on the basis of rental value, not floor area. In the total assessment of whether the building is depreciable or not, you must also include the rental value of the owner‑occupied part of the property.

Example
45 percent of the building (according to the rental value) is rented out to a business, 25 percent is rented out for residential purposes, and the owner lives in 30 percent of the building. The owner‑occupied part must be included when assessing whether the building is depreciable. The non-depreciable shares of the building amount to (25 + 30) 55 percent and this means that the building cannot be depreciated.

Assessing which depreciation group applies

If the building can be depreciated, you must determine the correct depreciation group (balance group), which determines the depreciation rate.

The group depends on the activities carried out in the building. The relevant balance groups are group h (buildings and installations, hotels, etc.), which as a main rule can be depreciated with up to 4 percent, and group i (commercial buildings), which can be depreciated with up to 2 percent.

Residential rental units are included in group i (commercial part) if the building is depreciable. For example, if at least 50 percent of the total rental value of the building can be attributed to the group for commercial buildings, the entire building (including any residential rental units) must be depreciated in this group (group i).

The owner‑occupied part is not included in this assessment and cannot be depreciated.

Example
30 percent of the building belongs to balance group h (buildings and installations, hotels, etc.), 25 percent belongs to balance group i (commercial buildings), 10 percent applies to the rental residential property, while 35 percent is the owner’s own residence. Since the depreciable parts are the largest (55 percent), the building is depreciable.

When assessing the group, the owner‑occupied part is not included. The residential rental unit is considered together with group i (commercial buildings), meaning the building must be depreciated in group i (commercial buildings). The basis for this is that the rental value for the commercial part and the rental residential property is higher than in "Building and construction".

The owner‑occupied part cannot be depreciated, and its cost price must be excluded when calculating the depreciation basis. If the building has a total cost price of NOK 10,000,000 (excluding the plot), the depreciation base in group i (commercial buildings) will be (10,000,000 × 65 percent) = NOK 6,500,000 (the entire cost except the owner‑occupied part).

You can claim a deduction for common expenses you pay to the housing company or cooperative for the residential property you rent out.
You cannot deduct repayments of joint debt. If repayments are included in the common expenses, you’ll need to subtract them before claiming the deduction in your tax return.
You cannot deduct interest on shared debt when calculating taxable rental income. If interest is included in the common expenses, you’ll need to subtract that too.

You can deduct expenses for advertising your rental property. You can also deduct expenses for rental services and viewings to find tenants.

If you pay ground rent for the plot your rental property stands on, you can deduct the ground rent. Ground rent is paid to the landowner if you do not own the plot yourself.

You can deduct costs for electricity, heating, and cleaning related to the rental property, if you pay for these yourself. It’s assumed you pay these costs if they’re included in the rent.

You can also deduct the cost of cleaning products you’ve paid for.

You can claim deductions for travel expenses related to the rental, such as viewings, maintenance, and inspections. If the rental is not considered a business, you can deduct actual costs. If the rental is not considered business activity, you can deduct actual expenses. If you use a private car, you can deduct based on the rate for business travel.

If the rental is considered a business, you can deduct travel expenses according to the general rules for travel to/from work and work-related travel. If you make up to 10 trips per year to a rental property or need to stay overnight, the travel is considered work-related. If you travel more than 10 days per year without overnight stays, it is considered as travel to/from work.

If you’ve set up a security deposit account in connection with the rental, you can deduct the account fee.

You may claim a deduction for expenses related to surveys of the rented-out residential property when reporting information about the area in order to assess the taxable value of your property.

You can deduct wear and tear on furniture and home contents.

Some purchases can be deducted immediately. Others must be depreciated, which means you deduct the cost over several years. Depreciation reflects the loss in value as the item is used and worn.

Deduction in the year of purchase

If you rent out a furnished property, you can deduct the full cost of furniture and home contents in the year of purchase if:

they’re mainly purchased for use in the rental property
they lose value due to wear and tear and/or ageing
they have an input value of less than NOK 30,000 or a useful life of less than three years

Example of deduction in the year of purchase:
If you buy a bed for NOK 27,000, you can deduct the full amount in the year of purchase. The same applies if you buy a snow shovel for NOK 700.

Depreciations - Furniture and home contents

If the cost of furniture or home contents is NOK 30,000 or more, you can use declining-balance depreciation (depreciation group D, rate 20 percent). In practice, the balance never reaches zero, but when the remaining value is below NOK 30,000 (before depreciation for the year), you can deduct the full remaining amount.

Example of depreciation:
If you buy a couch for NOK 50,000 in year 1, you can claim a deduction for depreciations amounting to (50,000 x 20 percent) NOK 10,000 in the first year.

In year 2, the residual value is (50,000 – 10,000) NOK 40,000, you can claim a deduction for the year's depreciations amounting to (40,000 x 20 percent) NOK 8,000.

Exemptions from depreciation

If you rent out the property fully furnished for less than three years and use the furniture yourself before and after the rental period, you can deduct 15 percent of the gross rental income instead of using depreciation.

Example of how deductions are calculated:
You rent out your furnished residential property for two years.
The agreed annual rent is NOK 200,000.

Instead of declining-balance depreciations, you can claim a deduction for depreciations amounting to (200,000 x 15 percent) NOK 30,000 in both year 1 and year 2 (in total, NOK 60,000).

If you have taxable rental income, you must report it in your tax deduction card.

Report the surplus or loss so you pay the right amount of tax.
Check that the value of the property is listed and correct.

You can update your tax deduction card as many times as you like. Start by reporting the surplus or loss you believe is correct and update it later in the year if needed.

You must log in to your tax return and enter the correct information about rental income and deductible expenses.

Your taxable surplus or loss will be calculated automatically once you’ve entered your figures.

Check that the wealth is correct

You must check that the property is listed and that the taxable value is correct. If something is wrong, you must log in and correct it.

Specific information if you

There are separate rules if the property was acquired for use in business activity.